Good news for online retailers and ecommerce – the Senate passed legislation that could ban taxes on sales for the next seven years. If passed into law would extend the moratorium on Internet taxes. Called The Internet Tax Freedom Act, it has been in effect since 1998 and has already been extended twice.
The extension was much-hoped for and looks promising. An agreement between the House and Senate must be reached and the new law signed before November 1st when the current moratorium expires.
The House has already passed a four-year moratorium on internet taxes, so the two must now reach an agreement. Then President George Bush will need to sign off, all before next Thursday.
As Roderick noted in his post on this issue, states have already passed their own laws about online taxes. Some have made a permanent moratorium while others passed laws to tax internet sales. Existing laws will be grandfathered in. Texas was grandfathered and so collects tax on Internet access if charges exceed $25.00 per month (which is essentially on all high speed internet).
Plus the law is murky and difficult to apply fairly and can actually mean customers pay more online than at a physical store. Then there are shipping charges to consider. If you care to read it, here’s the current law. The new legislation is under H.R. 743 in the House and S. 156 in the Senate.
Businesses have banded together in favor of a permanent ban and formed a group called Don’t Tax our Web (nebulous name, isn’t it?).
Those who oppose extending the law say that the money is needed for state and local governments. Companies say the ban will improve the economy overall and more people will get high speed internet and fuel even more sales online. Incidentally the growth of online sales probably depends on keeping this ban intact.
Some worried that instant messaging and email would be taxed in the future, however the Senate version has provisions to prevent it. This is banned in the current law. Also of note: the law doesn’t ban all taxes, just taxing Internet access and from imposing other taxes for online services like for email or bandwidth.
I wish I could find a concise list of online taxes by state. If you know of a guide of this sort, please comment below. Here’s a video about the issue, featuring quotes by Don’t Tax our Web.